Setup Cost and Batch Size: The YouTube Creator Example

Let’s explore the concepts of setup cost and batch size. These ideas are fundamental to almost every business, and we can understand them easily by looking at a simple one-person business example: a YouTube creator’s workflow.

What is Setup Cost?

Setup cost is the time or expense required to prepare before any productive work can begin. For a YouTuber, this includes a number of tasks you’ll recognize:

• Adjusting the camera and tripod
• Setting up lights and a microphone
• Preparing the filming background

Imagine that this process takes 30 minutes every time you decide to record. While the setup is a fixed cost, the actual recording time per video is relatively short.

What is a Batch?

A batch is a collection of identical items or tasks that are grouped together and processed simultaneously. The batch size refers to the number of items within that group.

The Math of Recording Short Videos

Let’s say a creator makes 5-minute videos.

• Setup time: 30 minutes (lights, camera, audio)
• Recording time: 10 minutes per video (5 minutes of content, plus retakes)

Here’s how capacity changes based on the batch size:

If you record a batch of 1 video:

• Total time = 30 (setup) + 10 (recording) = 40 minutes
• Capacity = 1 video ÷ 40 minutes = 0.025 videos/minute (1.5 videos/hour)

If you record a batch of 6 videos:

• Total recording time = 6 videos × 10 minutes = 60 minutes
• Total time = 30 (setup) + 60 (recording) = 90 minutes
• Capacity = 6 videos ÷ 90 minutes = 0.067 videos/minute (4 videos/hour)

This clearly shows how batching reduces the average time spent on setup for each video, significantly increasing your overall capacity.

For any batch size, B, we can calculate the capacity:

• Total processing time = 10B minutes
• Total time = 30+10B minutes
• Capacity = 30+10BB​ videos/minute

Let’s see this in a table:

Batch Size	Capacity (videos/min)
1	0.025
3	0.050
6	0.067
12	0.080

As you can see, capacity increases with batch size, but the rate of improvement slows down as the batch size gets larger.

Batch Size and Process Bottlenecks

Now, let’s assume you pass the raw footage to an editor who takes 20 minutes to complete the video.

• Editing capacity = 1 video ÷ 20 minutes = 0.05 videos/minute

Let’s compare this to our filming capacity:

• With a filming batch size of 3 videos, filming capacity is 0.05 videos/minute, while editing capacity is 0.05 videos/minute. This means the capacities of the two steps are perfectly balanced.
• But with a filming batch size of 12 videos, filming capacity is 0.08 videos/minutes, but editing capacity remains at 0.05 videos/minute. Editing is now becoming the bottleneck.

The overall output of the system is constrained by the slowest step, which in this case is editing. While filming more efficiently helps, the editing process still sets the maximum pace for your finished videos.

Beyond the Bottleneck: The Cost of Inventory

What if we could eliminate the editing bottleneck entirely, for example, by using an ultra-fast AI editor? It might seem like the best strategy is to increase your filming batch size as much as possible, as your capacity will continue to grow. However, one practical issue prevents this from being a perfect solution: inventory.

The Cost of Accumulating Inventory

A large batch increases the amount of inventory during the process, which incurs costs. In a traditional car factory, a large batch results in more inventory accumulating on the factory floor before the final cars are produced. This requires more physical space for storage and can result in the creation of unnecessary parts if the vehicles don’t sell smoothly, with these costs increasing as the batch size grows. In the YouTube example as well, a batch size of 12 videos waiting to be published carries a similar risk. The creator needs digital storage space for the 12 videos before uploading and risks producing a large amount of content that isn’t appealing to viewers. A smaller production scale (2-3 videos) allows the creator to quickly adjust their content strategy based on what’s working with the market’s response, which is a key advantage of operating with low “inventory.”

Inventory as a Variable Cost

This inventory cost is a variable cost that generally has an increasing marginal cost. For a single video that fails, only that one video is a loss. However, if you choose a batch size of 10 and discover a critical mistake after recording all the videos, you would have to modify all 10 videos, which may not be possible. In this scenario, you have essentially lost all 10 videos. The inventory cost increases as the batch size increases, and it is highly likely that the marginal cost also increases. This is a concept similar to economies of scale, where the average fixed cost (or average setup cost) decreases as the batch size increases, but the average variable cost (or average inventory cost) would increase. Therefore, an optimal point likely exists that balances these trade-offs, a concept often explored in economics (See Economies of scale).